October 16, 2014

Publisher Law Journal Press will be distributing hard copy supplements for Release 56 of "Structured Settlements and Periodic Payment Judgments" (S2P2J) later this month with online S2P2J subscribers receiving their update automatically and simultaneously. Online S2P2J includes a search feature and download capability as well as link features to access individual book sections, appendices, footnotes, cases and statutes.

First published in 1986 and updated semi-annually, S2P2J is co-authored byDaniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert (S2KM's Managing Director). Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have utilized S2P2J as an educational resource for their certification programs.

Highlights from Recent S2P2J Updates

Release 56

Practice tips for minimizing the risk of an IRS settlement challenge.

Updated summary of lessons learned from the Executive Life Insurance of New York (ELNY) insolvency.

March 03, 2014

Publisher Law Journal Press anticipates a Spring 2014 distribution date for hard copy supplements for Release 55 of "Structured Settlements and Periodic Payment Judgments" (S2P2J) with online S2P2J subscribers receiving their update automatically and simultaneously. Online S2P2J includes a search feature and download capability as well as link features to access individual book sections, appendices, footnotes, cases and statutes.

First published in 1986 and updated semi-annually, S2P2J is co-authored byDaniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert (S2KM's Managing Director). Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have utilized S2P2J as an educational resource for their certification programs.

The original S2P2J publication (1986) included comprehensive chapters detailing respectively the roles and responsibilities of defense attorneys (Chapter 4) and plaintiff attorneys (Chapter 5) in structured settlements. These chapters continue to be updated reflecting new legislative and regulatory developments as well as changing business models and practices.

Release 54, for example, substantially expanded and re-organized S2P2J's coverage of defendant structured settlement disclosure issues. Release 55 enumerates a list of "best practices" for defense attorneys and includes a new structured settlement Appendix document to disclose material information about the costs, commissions and other elements of case specific funding. Release 55 also identifies and summarizes new structured settlement case law related to plaintiff attorney settlement planning, compensation and document drafting responsibilities.

Release 55 adds, as a new Appendix document, the SSP "Standards of Professional Conduct for Settlement Planners" which SSP describes as "rules of reason ... intended to impose high standards on professional settlement planners" including structured settlement consultants.

Release 55 expands S2P2J's anti-assignment analysis concluding that recent court decisions "should cause judges reviewing transfer petitions to require the full text of structured settlement documentation to see if an anti-assignment provision is present. Without such information, transfer approvals are subject to being found to be void ab initio and thus open to invalidation at any time."

From a settlement planning and structured settlement perspective, the two most notable features of the AAJ 2014 Winter Meeting were:

The dichotomy between the general education program and the exhibitors; and

The absence, among the exhibitors, of structured settlement or settlement planning professional associations.

Significantly, the AAJ Winter Meeting general educational program focused on litigation issues with no structured settlement, and almost no settlement planning, topics. Perhaps the AAJ addressed this educational omission during one or more of its many membership-restricted sections and litigation groups meetings.

Regardless, the most recent, transformative legislative and regulatory developments impacting personal injury settlement planning and structured settlements deserve greater attention when the AAJ plans its 2014 Annual Meeting which will take place July 26-30 in Baltimore.

AAJ Meeting Exhibitors

Contrary to the general education program, the 84 exhibitors at AAJ Winter Meeting featured many companies offering settlement planning services including nine primary market structured settlement brokers and one structured settlement factoring company. Some of the structured settlement brokers were also notable among the platinum, gold and silver AAJ Winter Meeting sponsors. With exhibit space oversubscribed, more than 25 wait-listed companies were denied any exhibit space.

Plaintiff structured settlement brokers, however, face direct and ever-increasing competition from financial planners and trust companies. A 2006-2007 survey of plaintiff attorneys conducted by the National Structured Settlement Trade Association (NSSTA) found that trust company or bank trust departments are consulted about 40% of the time, financial planners about a third, and structured settlement consultants close to 30% in cases where plaintiff attorneys use outside financial advisors.

As a consequence, plaintiff structured settlement brokers are expanding their product and service offerings - as evidenced by the following cumulative list S2KM compiled from sales materials of various exhibitors at the AAJ Winter Meeting:

These expanding product and service offerings, and the resulting "blended products" and emerging business models, raise fundamental questions:

Who monitors and regulates settlement planning companies, products and services?

What laws and regulations apply?

What product suitability and disclosure standards apply?

What licensing and certification are required?

Business Practices and Standards

Historically, regulation of structured settlement business practices has fallen short of compliance requirements applicable to other financial and insurance product providers. For example, both the NAIC Model Annuity Disclosure and Annuity Suitability Regulations specifically exclude structured settlements.

Without substantiation, the following assertions from AAJ Winter Meeting structured settlement sales materials would almost certainly be prohibited by compliance directors at securities firms and/or trust companies:

"...90% of injury victims dissipate their entire settlement within 5 years of recovery....."

Our company is "... the premier settlement planning firm in the United States..."

Our company "provides the following services, free of charge:"

Our company has "delivered an unparalleled expertise and understanding of the laws and practices that have shaped [the structured settlement] industry"

Our company provides "the most innovative and comprehensive solutions to the challenges you and your clients face".

Our company offers "the most cost effective and comprehensive lien resolution service anywhere."

"A structured settlement ...[avoids] .... the risk of fraud".

"A structured settlement provides a higher rate of return than other funding vehicles."

"A structured settlement offer is more likely to be accepted than a lump sum offer."

"UNMATCHABLE RATES OF RETURN: Structuring your fees gives you an unmatchable rate of return with annual tax equivalent guaranteed returns that can reach:

"20+% for a 5-year investment

"15+% for a 10-year investment

"10+% for a 20-year investment"

The emerging settlement planning profession, featuring structured settlement annuities as a core product, provides increasingly important services for personal injury plaintiff attorneys and their clients. To justify their professional standing, settlement planning individuals and associations, including the AAJ, must continue to improve their related educational programs as well as their business practices and standards.

For S2KM's complete reporting about settlement planning and structured settlement professional association educational conferences, see the structured settlement wiki.

For detailed analysis of primary and secondary market structured settlement business standards and practices, see "Structured Settlements and Periodic Payment Judgments" (S2P2J).

July 23, 2013

Publisher Law Journal Press anticipates an October 2013 distribution date for hardcopy supplements for Release 54 of "Structured Settlements and Periodic Payment Judgments" (S2P2J)
with online S2P2J subscribers receiving their update simultaneously at
no additional charge.

Online S2P2J includes a search feature and
download capability as well as link features to access individual book
sections, appendices, footnotes, cases and statutes.

First published in 1986 and updated semi-annually, S2P2J is co-authored byDaniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have utilized S2P2J as an educational resource for their certification programs.

Negotiating Structured Settlements vs. Cashing Out -
Why and when should defendants agree to structured settlements as
opposed to lump sum settlements? Do defendants save money using
structured settlements and, if yes, why and how? Do structured
settlements result in additional costs and risks for defendants and, if
yes, how do defendants reduce these costs and risks? Release 54 examines
these questions in the context of existing state statutes and case law
and offers recommendations for defendants when they review their
traditional structured settlement policies and business practices. The
recommendations include new sample structured settlement Mission and
Disclosure Statements for liability insurers.

Insurance Company Insolvencies
- Release 54 expands and updates S2P2J's already extensive coverage of
insurance company insolvencies including state insurance guaranty
associations and the most recent developments impacting Executive Life
of New York [ELNY] and Reliance Insurance Company. Following ELNY's 22
years of New York State supervised "rehabilitation", S2P2J's Release 54
identifies lessons that potential structured settlement recipients and
their attorneys and advisers can and should learn from the ELNY debacle.

Medicare Set-Aside Arrangements
- Release 54 re-organizes and promotes S2P2J's coverage of Medicare
set-aside arrangements (MSAs) with updated materials for both workers
compensation (WC) MSAs and liability MSAs. These updates include an
extensive summary and analysis of the structured settlement provisions
in the new CMS WCMSA Reference Guide as well as conclusions and
recommendations for utilizing MSAs in personal injury liability cases.

Re-cycled Structured Settlement Payment Rights
- As low interest rates continue to negatively impact the primary
structured settlement market, new products featuring re-cycled
structured settlement payment rights have begun to proliferate as
funding alternatives for personal injury periodic payment settlements.
Release 54 features a new section with detailed diagrams and charts (designed by Timothy Morbach) to
explain the several variations of these products. In addition, this new
section compares the features of these products with traditional
structured settlements and summarizes recent investor warnings about
these products issued by the SEC and FINRA.

Securitization of Structured Settlement Payment Rights - S2P2J already includes a detailed Chapter 16 titled "Transfers of Structured Settlement Payment Rights"
which provides comprehensive coverage of most structured settlement
secondary market issues. This coverage includes: the history of the
secondary market; summary and analysis of IRC section 5891 and the state
structured settlement protection acts; and how judges review (or should
review) transfer applications. Release 54 adds a new section, with
detailed diagrams and charts (designed by Timothy Morbach), explaining how securitization of
structured settlement payment rights works.

Australia Structured Settlement Update
- S2P2J continues to track structured settlement developments in
countries outside the United States including Canada, the United
Kingdom, Continental Europe, Australia and New Zealand. Release 54
highlights a recent legislative development in Australia called “The
Lifetime Care and Support Scheme” which provides treatment,
rehabilitation and attendant care services to people severely injured in
automobile accidents. At least one Australian structured settlement
expert believes this legislative development could prevent an
annuity-funded structured settlement market from developing in Australia
anytime soon.

"Structured Settlements and Periodic Payment Judgments"
is a complete reference work for attorneys, settlement planners,
structured settlement consultants, risk managers, liability insurers,
annuity providers and secondary market participants. It is available in
both hardcopy and online versions which are updated semi-annually. For highlights from previous S2P2J updates, see the structured settlement wiki.

December 30, 2012

At one time or another, each of us may have become acquainted with individuals who have overcome personal injuries and successfully transformed their disabilities and special needs into special lifetime accomplishments. Kyle Walsh, profiled in a 2012 S2KM blog post, is one such individual. The late Randy Snow, featured in a 2008 S2KM blog series, was another.

Structured settlements are supposed to provide
economic security for people with serious injuries and disabilities -
to help them rebuild their lives and, in many cases, to achieve special
lifetime accomplishments. Instead of an all-cash personal injury
settlement, structured settlement recipients accept a promise of future
periodic payments.

What happens, if and when, that promise is broken?
What happens when a structured settlement funding company, and the
regulators and guaranty system responsible for protecting the structured
settlement recipients, fail to make and/or insure full payment?

These questions are highlighted by the Executive Life of New York
(ELNY) liquidation - the dominant structured settlement story of 2012
and one of the most important developments in the history of the United
States structured settlement industry.

The story of ELNY,
as well as its affiliate Executive Life of California (ELIC), and their
parent company, First Capital Corporation (FEC), is long and complex.
For background of events prior to ELNY's 1991 receivership, S2KM
recommends Gary Schulte's 1992 book "The Fall of First Executive".

Significantly, neither
the 1991 ELNY Rehabilitation Order nor the 1992 Order approving the
ELNY Rehabilitation Plan declared ELNY to be insolvent. When then New
York's Insurance Commissioner Salvatore Curiale seized control of ELNY
on April 16, 1991 and placed it in receivership, he stated: "The
company is currently neither in an insolvent or impaired condition. . . .
I have not petitioned the Court to make a finding of insolvency. ELNY
is a company well able to meet its current obligations."

Exactly
twenty-one years later, on April 16, 2012, following 11 days of
hearings at the Nassau County New York Supreme Court, presiding Judge John M. Galasso approved an Order ofLiquidation and a Restructuring Agreement
for ELNY as proposed by the Superintendent of the New York State
Department of Financial Services (Superintendent), as ELNY's Receiver,
and the National Organization of Life and Health Guaranty Funds
(NOLHGA).

The result of the ELNY Liquidation Order and
Restructuring Plan, even following contributions from state guaranty
funds and voluntary life insurance company contributions, is a $900 million shortfall
allocated entirely (and arguably inequitably) to more than 1400 ELNY
payees out of a total of approximately 9700 current ELNY payees. The
remaining ELNY payees expect to receive 100 percent of their promised
future payments. The average individual shortfall is estimated to exceed
$600,000 present value. Although an ELNY Hardship Fund has been created, it has not yet been funded.

An appealwas filed
May 30, 2012, on behalf of 18 ELNY structured settlement shortfall
payees, challenging the ELNY liquidation order and restructuring
agreement on the basis of due process. The appeal also alleges that
immunities and injunctions granted under the liquidation order are
improper. Oral arguments
occurred on November 15, 2012 in Brooklyn before the Appellate Division
of the Supreme Court of the State of New York, Second Department. No
decision has been announced.

Another legal challenge to the ELNY liquidation order occurred June 14, 2012 when attorneys for several liability insurers filed a Motion asking Judge John Gallasso to "clarify and/or correct" his April 16, 2012 ELNY Memorandum Decision. The motion indirectly raises the issue
of whether qualified assignments extinguish the liability of defendants
and/or liability insurers for shortfall payments resulting from the
ELNY liquidation? Judge Galasso denied the Motion without further explanation.

In a subsequent development, somewhat related to the liability insurers' motion, the ELNY website announced an ELNY Facilitation Plan
to assist owners of ELNY structured settlement annuities (SSAs) make
supplemental payments to ELNY SSA payees and to coordinate those
payments with the ELNY benefit payments scheduled to be made by the
Guaranty Association Benefits Company (GABC) under the ELNY
Restructuring Plan approved by Judge Galasso on April 16, 2012 as part
of the ELNY liquidation order.

The same attorneys who filed the ELNY appeal, Edward Stone and representatives of the Christensen & Jensen law firm, filed a class action lawsuit November 8, 2012, on behalf of ELNY shortfall victims, against Benjamin M. Lawsky,
Superintendent of Financial Services of the State of New York, and his
predecessor ELNY Rehabilitators, as well as MetLife and Credit Suisse.
The class action allegations
provide a critical litany of mismanagment and non-disclosure during
the 21 years ELNY's estate was being supervised by these defendants.

In response, attorneys representing Benjamin M. Lawsky, in his capacity as ELNY's Receiver, filed a Notice of a Motion
with the Nassau County New York State Supreme Court requesting oral
argument on January 4, 2013 at 9:30 a.m. or as soon thereafter as the
parties may be heard:

to enjoin three ELNY structured settlement shortfall payees and their legal counsel from proceeding with a class action lawsuit in the United States District Court Southern District of New York;

to hold in contempt of court the shortfall payees' legal counsel; and

to require their payment of the related costs and attorney's fees incurred by the Superintendent.

Although the ELNY liquidation has so far received limited coverage in the mainstream media, specialty insurance experts and analysts have not been silent. Examples:

Peter Bickford - In his article titled "The Elephant in the Court Room" (summarized here
by S2KM), Bickford argues New York’s receivership system has failed
ELNY, its policyholders and beneficiaries, as well as the insurance
industry and its customers due to a lack of basic accountability
standards. Although the ELNY restructuring plan may solve the immediate
ELNY problem (at the expense of the remaining ELNY shortfall victims),
Bickford maintains it does not address the broader, underlying systemic
defects inherent in the New York life insurance receivership system.
Without an act of the New York legislature, according to Bickford, "there will be no life insurance guaranty fund coverage in New York"
following ELNY. Bickford's article also provides succinct summaries of
objections raised by ELNY shortfall victims and ELNY legal issues which
he states "could linger in the courts for years"

LifeHealthPro - In an article titled "The Complete ELNY Saga: 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", (summarized here by S2KM), the authors assign primary blame for ELNY insolvency to the NYLB which they describe as "a
rogue agency known for its codes of secrecy and characterized by many
who spoke for this story as ineffective and mismanaged at best, and a
snake pit of corruption at worst". In a companion article (reviewed here by S2KM), writer Warren Hersch asks: "is the structured settlement process in need of reform"? In a follow-up oped article titled "Governor Cuomo I'm Calling You Out", (summarized here
by S2KM), Bill Coffin, LifeHealthPro's Group Editor, charges New York
Governor Andrew Cuomo with personal responsibility to clean up the "ELNY debacle".

The
final results of the ELNY liquidation will depend upon the outcome of
the continuing litigation highlighted in this article. It also remains
to be seen what reforms, if any, will result from the failed ELNY
receivership process.

In conclusion, it should also be noted that ELIC-related litigation continued in 2012 (Garamendi v. Altus Finance S.A.) when a federal jury in Los Angeles rejected a claim by California's Insurance Commissioner that, but for a conspiracy by French investor group Artemis S.A.:

ELIC's
original conservator (then California insurance commissioner John
Garamendi) would have accepted an alternative bid in 1991 by state
insurance guaranty associations; and

The alternative bid would
have retained profits from ELIC's junk bond portfolio for the benefit of
policyholders including ELIC structured settlement recipients.

November 25, 2012

The Executive Life of New York (ELNY)class action lawsuit , filed November 8, 2012 by attorney Edward Stone and representatives of the Christensen & Jensen law firm, on behalf of ELNY shortfall victims, against Benjamin M. Lawsky,
Superintendent of Financial Services of the State of New York, and his
predecessor ELNY Rehabilitators (Superintendent and/or Rehabilitator), MetLife and Credit Suisse, substantially expands the historical allegations of post-1991 ELNY mismanagement and non-disclosure.

What follows is S2KM's re-configuration of selected allegations from the class action complaint into an ELNY "allegation timeline".

For persons seeking more comprehensive understanding of alleged
mismanagement of ELNY during its 21 year rehabilitation, S2KM recommends
reading the ELNY class action complaint which is posted on the structured settlement wiki. The following S2KM blog posts provide additional critiques of the New York Liquidation Bureau's (NYLB) role in ELNY insolvency:

New York's Insurance Superintendent Salvatore Curiale states:
"[ELNY] isn't insolvent and has ample cash on hand to pay life
insurance death benefits and meet annuity payments."

Curiale further
states: "The company is currently neither in an insolvent or impaired
condition. . . . I have not petitioned the Court to make a finding of
insolvency. ELNY is a company well able to meet its current
obligations."

April 23, 1991

ELNY Rehabilitation Court enters an Order of Rehabilitation which prohibits "all" persons, including the Rehabilitator, from "doing or permitting to be done any act or thing which might waste the assets" of ELNY.

Under
ELNY's Order of Rehabilitation, no more than 30 percent of ELNY's
assets can be invested in common stock at any given time. This 30
percent cap is 50 percent higher than the percentage allowed by active
insurance companies.

Consistent
with normal practice, Superintendent Curiale, ELNY's Rehabilitator,
delegates most of his ELNY rehabilitation duties to the New York
Liquidation Bureau [NYLB], directed by a Special Deputy Superintendent
who in 1991 is Kevin Foley.

May 17, 1991
- In a letter to ELNY policyholders, the Superintendent confirms the sole basis for ELNY's rehabilitation has been the risk of policy
surrenders. The letter further states the Superintendent is "presently
analyzing the assets and liabilities of ELNY[.]"

The court also approves an investment advisory and management agreement with a First Boston
affiliate providing for the payment of multi-million dollar fees.

First
Boston (and its successor/purchaser Credit Suisse) subsequently invests
ELNY's assets in violation of its contractual obligations, in violation
of the court's order, in violation of its representations to the NYLB
and the court, and in violation of its fiduciary duties to ELNY
shortfall payees.

Instead,
First Boston and Credit Suisse engage in a pattern of risky investments
that generate high management fees and place ELNY's assets at
considerable risk.

Note: Credit Suisse acquired First Boston Corporation in 1990 but did not phase out the First Boston name until 2006.

June 1991 - The Superintendent contacts the Life Insurance Guaranty Corporation of
New York (LIGCNY) to discuss the disposition of ELNY. MetLife, the
largest domiciled insurance company in New York, has a lead position in
LIGCNY and receives information about ELNY that is not available to
other insurers generally or to the public.

BetweenJune and November 1991

NYLB
enters into discussions with MetLife. Deputy Superintendent Foley is the principal person representing NYLB in these discussions.

Under
an agreement ultimately approved by the Rehabilitation Court, MetLife
receives more than $1.5 billion of ELNY's traditional whole life, term
life and single premium deferred annuity books of business plus $1.5
billion of ELNY's highest-quality assets.

NYLB takes several steps to prevent competitive bids from other insurers.

The
products transferred to MetLife include 52,748 single premium deferred
annuities and 80,891 life insurance policies. This large book of
business allows MetLife to increase its assets by more than $1 billion
at essentially no risk.

In addition to receiving cash, MetLife is allowed to pick and choose from among ELNY's bonds and to charge "substantially higher surrender charges" than allowed under the ELNY contracts.

Part
of the agreement with MetLife includes retention of MetLife to service
ELNY's remaining SPIAs (including structured settlement annuities) with a
monthly fee of $5.50 per payee if payments begin before the last day of
any month and $2.50 per payee if payments have not begun.

Under
this arrangement, ELNY's true liabilities are ascertainable only by
NYLB and MetLife, the only entities with access to the annuity
contracts.

October 9, 1991 - In a
letter to ELNY policyholders and annuitants, the
Superintendent reiterates the original ELNY takeover was due to
surrender requests and further states: "it remains our belief that
ELNY policyholders, annuitants and contract holders will receive 100% of
the amounts due them under any of the options chosen as part [of] the
rehabilitation plan. ... Please be assured that your money is being well
protected and conservatively invested by the Rehabilitator."

January 21, 1992 -
In a letter to ELNY policyholders and annuitants, the
Superintendent states he is proposing a transfer of assets to MetLife
and that "[t]he contemplated exchange and reinsurance agreements [with
MetLife] would place you in a substantially similar position as you were
at the time of the entry of the Rehabilitation Order."

March 26, 1992
- To implement the agreements with First Boston and MetLife, NYLB
submits a proposed ELNY Rehabilitation Plan which the court approves.

First
Boston represents to the court the only possible course of action
is to transfer virtually all of ELNY's investment grade assets to
MetLife in exchange for MetLife assuming ELNY's
obligations to only part of its policyholders.

First
Boston and NYLB represent that with First Boston's management of ELNY's
assets, it is more than 90% certain the remaining ELNY assets will be
sufficient to meet 100% of ELNY's obligations.

Superintendent Curiale represents that, following "an
extensive and detailed analysis ... Petitioner, as Rehabilitator,
determined that the transaction proposed in the Plan would not impose
any unwarranted or unreasonable risks on ELNY's SPIA holders, creditors
or shareholders."

Deputy Superintendent Foley states that, after the transfer, "we will make continued full payment" to annuitants, that he is "fully confident that these payments can and will be made," and that it is a "100 percent guarantee."

NYLB
represents that ELNY's remaining assets and liabilities will be
approximately equal after the transfer of assets to MetLife. In fact,
after the highest-value assets are transferred to MetLife, ELNY's
remaining assets are less that its fixed liabilities by at least $300
million.

From
1992 until 2010, the NYLB never files any reports with or otherwise
updates the ELNY Rehabilitation Court with respect to ELNY's annuities.

April 13, 1992 - In a letter to ELNY policyholders and annuitants, the Superintendent states the proposed transfer of assets to MetLife "best protects all classes of ELNY policyholders and provides security, value, fairness, timeliness and practicality."

"Under the M&R study, the
projected cash flows from the remaining assets [are] sufficient to meet
95% of the SPIA obligations under approximately 99% of the scenerios
tested using ... base case default, recovery, yield and rate of return
assumptions."

1996 - NYLB for the first time refuses unrestricted access by the New York
State Comptroller's office (Comptroller) to its records and personnel.

The Comptroller reports: "During
our work, Department and Bureau officials prevented auditors from
examining relevant records related to the liquidation of one estate and
employee personnel-related records. Our audit was precluded from
interviewing agency managers and operating personnel without senior
management present, thereby creating an environment where those
individuals could not speak freely."

Prior to its takeover of ELNY, NYLB had generally cooperated with audits requested by the Comptroller's office.

For example, no limitations were placed on the Comptroller in 1976, 1984, or 1990.

In 1994, the Comptroller performed a follow up audit limited to items that had not been reviewed in 1990.

1998 - Common stock comprises 38 percent of ELNY's portfolio exceeding the 30 percent limit set by the 1991 Order of Rehabilitation.

1999

A NYLB representative states it could take up to 100 years before ELNY is finally liquidated.

Former Deputy Superintendent Foley begins employment with MetLife as its Vice President of External and Internal Communications.

2000

Common stock comprises as much as 44 percent of ELNY's investment portfolio.

ELNY's common stock portfolio loses hundreds of millions of dollars, nearly one-third of its value.

2001

In a meeting with a potential ELNY investor representative, the then Deputy Superintendent states: "Why would we want to sell [ELNY] when we can sit here and clip coupons all day."

ELNY's common stock portfolio drops another 13 percent.

2002 - ELNY's common stock portfolio drops another 19 percent.

2004 - The NYLB refuses a Comptroller request to perform a comprehensive audit to include a review of ELNY's assets and liabilities.

November 17, 2004 - The Superintendent files suit to quash the subpoenas.

June 30, 2005 - A New York Supreme Court quashes the subpoenas, and the Comptroller appeals.

Late 2005 or early 2006

Then-New York Attorney General Eliot Spitzer campaigns for Governor on an anti-corruption platform.

NYLB
officials approach NOLHGA and the two entities begin working on a plan
to liquidate ELNY without informing the Rehabilitation Court or ELNY's
policyholders and annuitants of ELNY's insolvency.

Under this plan, more than 1400 ELNY annuitants would suffer reduced payments of up to 66 percent.

August 2006 -
Then-Special Deputy Superintendent Jody Hall, who has
responsibility for NYLB, is fired for suspected corruption. She later
pleads guilty and is convicted.

November 2006 - Governor-elect Spitzer identifies an investigation of the NYLB as an important priority for his administration.

2007

On
at least three occasions prior to 2007, groups of potential investors
advise the Superintendent of an interest in purchasing ELNY's assets and
liabilities. On each occasion, the Superintendent directly interposes
impediments to the performance of due diligence and other
investment-related activities.

NYLB personnel begin
contacting insurance companies and others, such as purchasers of
structured settlement payment rights, demanding they contribute money to
shore up ELNY or face punitive actions by the New York Department of
Insurance.

January 2007 - Governor Spitzer appoints Mark Peters as the new Superintendent.

March 6, 2007 - The New York Appellate Division rules the Comptroller can enforce its subpoenas against NYLB.

May 2007 - Superintendent Peters announces NYLB will be subjected to a "top to bottom"
audit by an independent auditor for the first time in NYLB history. The
auditors discover the NYLB's financial records are in complete disarray
requiring the NYLB to "reconstruct" the financial records of all 60 estates under its supervision.

October 11, 2007 - In Dinallo v. DiNapoli
, the New York Court of Appeals holds that, in his capacity as
rehabilitator/liquidator of insurance companies, the Superintendent is
not a state officer. Therefore, acting as the Superintendent's agent,
the NYLB is not a state agency and is not subject to audit by the New
York State Comptroller.

The
announced plan, whereby various insurers and guarantee associations
apparently agree to pay $650 to $750 million to help fund $2 billion of
future ELNY payments, never materializes.

October 2008
- Independent auditors discover NYLB has been understating ELNY's
shortfall by more than $1 billion for years. Examining ELNY's estate as
of December 31, 2006, the auditor concludes ELNY's liabilities exceed
its assets by $1.26 billion.

March 18, 2009 - without notification to ELNY policyholders and annuitants, Judge Daniel Martin signs an Order allowing NYLB to:

"[F]rom
time to time amend the [Investment] Guidelines set by the Rehabilitator
in consultation with his new financial advisors if the Rehabilitator
deems it beneficial to ELNY."

December 17, 2010 - State Supreme Court Judge Galasso orders the Superintendent
to present the Court with a proposed order and plan of liquidation for
ELNY on or before July 1, 2011 after the Superintendent confers with the
New York Life Insurance Company Guaranty Corporation and other
interested parties.

June 23, 2011 -
The Superintendent files a motion to postpone the deadline for filing a
proposed order and plan of liquidation for ELNY from July 1, 2011 to
August 10, 2011 "in order to present a comprehensive and consensual
proposed Plan of Liquidation that maximizes the potential benefits for
ELNY's structured settlement and other annuitants."

August 8, 2011 - Counsel for the Superintendent advises the court the Superintendent 'is not in a position to submit a consensual proposed order and plan of liquidation on or before August 10, 2011" as previously promised. Instead, he anticipates the Superintendent doing so on or about August 26, 2011.

October 3, 2011
- Governor Andrew Cuomo creates the New York Department of Financial
Services by consolidating the New York Insurance and Banking
Departments. The Superintendent of Financial Services becomes the court
appointed fiduciary and Receiver/Rehabilitator of ELNY as well as other
impaired and insolvent insurance companies in New York.

December 2011 - NYLB:

Files an ex parte motion stating its intent to liquidate ELNY.

Notifies ELNY shortfall payees for the first time that their benefits will be cut.

March 2012 -
Following a hearing, Judge Galasso determines ELNY is
insolvent and approves the liquidation plan and restructuring agreement
upon which NYLB and NOLHGA have been collaborating since 2006.

November 14, 2012

In a companion article to the National Underwriter's recent comprehensive analysis of the Executive Life of New York (ELNY) Liquidation ("The Complete ELNY Saga"), writer Warren Hersch asks: "is the structured settlement process in need of reform"?

The Hersch article highlights a "potpourri" of structured settlement issues:

Business practices - including disclosure and suitability issues

Structured settlement regulation - or lack thereof

Industry lobbying

Industry education

Broker compensation

Structured settlement transfers

IRC 468B qualified settlement funds

Declining annuity sales

Increasing case complexity - including annuity/trust blended products

An evolving settlement planning profession

Responsibilities of plaintiff attorneys

Financial strength of annuity providers

In addition to industry criticism, the article features diverse individual perspectives demonstrating a foundation for industry consensus:

Len Blonder

“No other option today can match the structure’s mix of tax-free income and guaranteed security.”

"A casualty company should ... be allowed to vet their own representatives of choice.”

"Plaintiffs are free to hire any financial professional from among the tens of thousands that are available to them."

Joseph Dehner

"A
personal injury attorney for claimants who isn’t even considering a
structured settlement in high damage cases is bordering on malpractice."

“Structured
settlements have become both more flexible and complicated because of
the advanced planning that now accompanies these transactions.”

“The
qualified settlement fund (QSF) allows for a significant increase in
the amount of time that payees have to make necessary determinations.”

"But
for the single plaintiff, use of the vehicle comes with uncertainty.
That’s because it is unclear whether a single plaintiff is treated for
tax purposes as receiving funds deposited into a QSF."

Timothy Morbach:“More
should be done to recognize that the field of settlement planning is
highly specialized and that [claimants] should make efforts to retain
separate and qualified financial and legal counsel with respect to the
strategies they wish to implement.”

Charles Schell:“If
the plaintiff's attorney engages a settlement planner, then .... , more
likely than not, the product or plan recommended will be suitable.”

Peter Gallanis:"The
rate of insolvencies among life and health insurers, now at an all-time
low, are but a fraction of the hundreds of failures within the
commercial and investment banking and thrift sectors during the
financial crisis."

Perhaps this National Underwriter article will help motivate the structured settlement industry to undertake its own strategic analysis about whether and how to reform the structured settlement process. Immediate existential challenges certainly exist. In addition to the ELNY liquidation, these challenges include:

Transitioning business skills, relationships and processes to the Internet.

Assuming Charles Darwin was correct:It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.

The primary strategic issues for the structured settlement industry are whether, when, how and to what degree it will become "responsive to change"?

Can industry leaders:

Be honest ?
- Acknowledge the problems. Study the changes. Abandon political
correctness. Question traditional assumptions, business models and
business practices.

Be inclusive ? - David Ringler, NSSTA's first president, re-stated NSSTA's original vision during NSSTA's 2011 annual conference: "I
still believe having a place where everyone and anyone can sit down
with each other and discuss the issues and viewpoints regardless of
beliefs is the most important reason for NSSTA. ... If we can continue this tradition, there is no
problem we cannot overcome."

Be open ? - The late James Corman insisted promoters of structured settlements were "on the side of the angels".
Does that statement remain true today? To regain public trust, empower
stakeholders and expand the customer base, structured settlement
strategic planning needs to re-emerge from behind closed doors.
Important industry issues need to be articulated and discussed openly.

Listen to customers ? - The profiles of ELNY structured settlement victims featured in "The Complete ELNY Saga" provide a valuable introduction. Prior market surveys should be re-visited, updated and expanded. The traditional "one and done" structured settlement customer model needs to be re-evaluated.

Engage critics ?
- and challenge/encourage critics to be part of an industry solution by
incorporating their relevant issues and best ideas into a strategic
thinking process? These critics include legal and financial
professionals who view the structured settlement product and market as core components of a larger and more complex settlement planning
industry.

For related S2KM reporting and analysis, see the structured settlement wiki:

November 12, 2012

The comprehensive analysis of the Executive Life of New York (ELNY) liquidation published last week by the National Underwriter Life & Health magazine on its LifeHealth Pro website describes a "slow-motion disaster of gross mismanagement"
the magazine claims will result in severe collateral damage not only to
hundreds of ELNY structured settlement shortfall victims but also to
the life insurance industry more generally.

In its lead article, titled "The Complete ELNY Saga - 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", the National Underwriter report intersperses profiles of five ELNY structured settlement shortfall victims with an historical summary of the 21 year ELNY rehabilitation and liquidation process.

The historical summary concludes:

"[T]he ELNY rehabilitation, restructuring and liquidation have been nothing short of disastrous.
Not only did regulators fail to protect a company from being
dis-mantled by its insolvent parent, it failed to adequately manage the
company from Day One. It failed its self-appointed fiduciary duty to
serve ELNY’s payees. It failed to act with integrity, and it failed to
uphold the social compact between insurers and their customers that if
the money needs to be there, it will be there. Always. Without fail.
Without exception."

"At every single turn with ELNY, there was failure after failure to uphold the public’s trust.
The state of New York, and especially the New York Liquidation Bureau,
so badly disrupted the leap of faith between insurer and insured that
the ripples will be felt for years to come, as every one of ELNY’s
shortfall payees tells anyone who will listen that insurance and
annuities are not worth it. That the money will not be there when it is
needed, that the government will not protect the public." (emphasis added)

The National Underwriter article challenges the conventional explanation of ELNY's downfall which S2KM reported previously in "The Fall of First Executive". Instead, it assigns primary blame to the New York Liquidation Bureau
(NYLB), the non-government entity to which the New York Insurance
Superintendent delegated ELNY management responsibilities beginning in
1991.

Describing the NYLB as "a
rogue agency known for its codes of secrecy and characterized by many
who spoke for this story as ineffective and mismanaged at best, and a
snake pit of corruption at worst", the article highlights many examples of alleged mismanagement and lack of disclosure related to the ELNY liquidation:

Failure to prepare and/or maintain any financial reports for ELNY for the years 1990, 1991 and 1992.

The
1991 decision to sell almost all of ELNY's non-structured settlement
business along with its non-junk bond investment portfolio to MetLife.

Predicating
the rehabilitation plan on unrealistic assumptions such as 30-year U.S.
government treasuries maintaining an average interest rate of nine-and-a-half
percent.

Selling ELNY's high yield bond portfolio for a steep discount in 1991 at the bottom of the "junk bond" market.

Reinvesting the proceeds in an unsafe percentage of common stocks vs. more conservative bonds.

Increasing
ELNY gross liabilities by $500 million between 1999 and 2000 based upon
questionable assumptions and without due diligence.

Reporting
discrepancies and irregularities including incorrect numbers of
policyholders and thousands of purported policyholder birth dates after
ELNY entered rehabilitation.

Alleged corruption resulting in the dismissal of NYLB superintendent Jody Hall in 2006 at a time when Hall allegedly "was making persistent efforts to examine the elusive financial records on ELNY". Note: the National Underwriter provides additional related details in a companion article titled "The Aborted New York Liquidation Bureau Investigation".

In the context of NYLB's alleged "gross mismanagement", the National Underwriter article finds it especially offensive that Judge John Galasso granted the NYLB complete judicial immunity
as part of his ELNY liquidation order with support from the Superintendent of New York State Department
of Financial Services and NOLHGA.

Attorney Edward Stone filed a Notice of Appeal
May 30, 2012 on behalf of 18 ELNY structured settlement shortfall
victims as objectors with the Appellate Division of the Supreme Court of
the State of New York, Second Department, challenging Judge Galasso's order. Oral arguments for the appeal are scheduled for November 15, 2012.

The National Underwriter article concludes: "the final chapter has not closed on ELNY, and there still is time to fix the problem without causing so much collateral damage." It
urges the New York state government and/or the insurance industry to
dedicate funds to fully restore ELNY and its shortfall victims.

October 08, 2012

Publisher Law Journal Press anticipates a late October 2012 distribution date for hardcopy supplements for Release 52 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).
Online S2P2J will also be updated late October 2012 to include Release
52 materials. First published in 1986, S2P2J is co-authored and updated
semi-annually by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) utilize S2P2J as an educational resource for their certification programs.

Release 52 Highlights

Documenting a structured settlement is generally more complicated than the paper work involved with a lump sum settlement. Structured settlement documentation
can be further complicated depending upon the number of claimants and
annuities, whether plaintiff attorneys defer their fees, the need to
allocate damages, the degree of government benefit planning and the
growing integration of annuities and trusts into blended products.

Increasingly, therefore, the parties to a structured settlement agreement must endeavor to implement complex settlement plans,
using multiple funding devices, designed to address both the intent of
the parties and compliance and accountability requirements from the
public sector.

To assist structured settlement participants in achieving these objectives, S2P2J Release 52 features new sample structured settlement forms
with suggested alternate clauses for use as circumstances change. The
new sample forms include a model Structured Settlement Agreement, with a
Supplemental Schedule to more conveniently address funding details,
plus an optional Advisory Disclosure document specifying the
involvement, services and commission sharing (if any) of structured
settlement consultants used by the claimant, defendant and liability
insurer(s).

The Supplemental Schedule provides a useful, alternative format for specifying the funding details of the settlement, including:

The amount of up-front payments and their recipients.

The cost to purchase funding for the periodic payments.

A provision if the claimant’s attorney will receive periodic payments.

Allocations by the parties between tax-free and taxable payments.

Amount
of monthly payments and whether they will extend for the claimant’s
lifetime or for the greater of claimant’s lifetime or a set period of
time.

Designation of attorneys to be paid and at what address or to what account number.

Language used to permit or disallow later transfers of periodic payment rights.

To help explain these new structured settlement forms, the authors have added extensive related commentary discussing how to create enforceable structured settlement agreements that minimize the risk of post-closing issues.

Release 52 also features a comprehensive update of the Executive Life of New York (ELNY) liquidation plus new and/or expanded analyses for the following structured settlement industry issues and case developments:

August 07, 2012

In an August 2, 2012 blog post titled "Uniform Fiduciary Standards Only Half the Story", John Darer offers the following critique of this earlier S2KM blog post: "It's a pity that an otherwise well written blog post by Patrick Hindert about Uniform Fiduciary Standards, unexplainably omits standards for the secondary market."

S2KM's blog post addressed the following issue: "What impact will a new uniform fiduciary standard, being developed by the Securities and Exchange Commission (SEC) as one result of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), have upon existing structured settlement and settlement planning business models and practices?"

Without any discussion of the secondary market, S2KM's blog post also highlighted certain traditional primary market structured settlement business practices that fail to meet any fiduciary standard:

By "setting aside the good players", however, John's blog post spotlights existing bad business practices but does not identify or address secondary structured settlement market business standards. What are those secondary market standards - and how do (or should) these standards impact the primary market?

Looking specifically at the "uniform fiduciary standard" (the subject of the S2KM blog post in question), the related secondary market standard is the "best interest" test. There are three sources that establish and/or address this secondary market standard: 1) IRC section 5891; 2) the state structured settlement protection statutes; and 3) judicial interpretations of the "best interest" standard.

IRC Section 5891

IRC section 5891 imposes a 40 percent excise tax on any person who acquires structured settlement payment rights in a factoring transaction. The excise tax, however, does not apply if the transfer is approved in advance in a "qualified order" issued under an applicable state statute by an applicable state court.

IRC section 5891(b)(2) defines a qualified order as “a final order, judgment or decree” that satisfies two requirements: a qualified order must find the transfer of the structured settlement payment rights:

does not contravene:

Any Federal or State statute or

The order of any court or responsible administrative authority; and

Is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents.

State Structured Settlement Protection Acts

Forty-seven states have enacted some form of structured settlement protection act. While the various state SSPAs lack uniformity, most adopt the same terminology and share the same basic legislative scheme as the Model SSPA. Echoing IRC section 5891, the state SSPAs provide that structured settlement payment rights transfers are not effective unless they receive advance court approval. Under each of the state SSPAs, key terms are defined, procedures for obtaining court approval are spelled out, and required notices, disclosures and findings are established.

Although all of the state SSPAs incorporate the "best interest" test, the California statute is the only SSPA that defines best interest. Section 10139.5 (b) of the California Insurance Code lists 15 factors that judges should consider "[w]hen determining whether the proposed transfer should be approved, including whether the transfer is fair, reasonable, and in the payee’s best interest, taking into account the welfare and support of the payee’s dependents" including:

“(1) The reasonable preference and desire of the payee to complete the proposed transaction, taking into account the payee’s age, mental capacity, legal knowledge, and apparent maturity level"; and

“(15) Any other factors or facts that the payee, the transferee, or any other interested party calls to the attention of the reviewing court or that the court determines should be considered in reviewing the transfer.”

Judicial Interpretations

In the absence of a state SSPA "best interest" standard, state courts have applied differing determination standards and have been reluctant to provide their own definitions. For example, here is a statement from a 2003 New York trial court opinion (In re Petition of Settlement Capital Corp.):

"Although the [New York] statute does not define the best interests of the Payee, developing case law and the intent of the statute suggest the Court should consider: (1) the Payee’s age, mental capacity, physical capacity, maturity level, independent income, and ability to support dependents; (2) purpose of the intended use of the funds; (3) potential need for future medical treatment; (4) the financial acumen of the Payee; (5) whether the Payee is in a hardship situation to the extent that he or she is in “dire straits”; (6) the ability of the payee to appreciate financial consequences based on independent legal and financial advice; [and] (7) the timing of the application."

Conclusion

What relevance, if any, therefore, does the secondary structured settlement market "best interest" standard have as primary market stakeholders contemplate the potential impact of a uniform fiduciary standard under the Dodd-Frank legislation?

Neither IRC 5891 nor any of state SSPAs apply their "best interest" test to primary market structured settlement sales. Only four of the state SSPAs (New York, Florida, Massachusetts and Minnesota) establish any primary market sales standards, each requiring certain mandatory written disclosures.

The secondary market "best interest" test, however, does raise important issues for the primary structured settlement markets. Most importantly, If structured settlement transfers are required to be in "the best interest of the payee, taking into account the welfare and support of the payee's dependents", why shouldn't a "best interest" test or fiduciary standard apply to the original structured settlement sale?

Thank you, John Darer, for pointing out the importance of this issue.

For additional discussion and analysis of secondary market business practices and the "best interest" test, see: